It was the year 2002 when Peppercoin was launched. Peppercoin was a cryptographic system for processing micropayments. Silvio Micali and Ron Rivest first presented it at the RSA Conference in 2002 (although the name had not yet been given).
Peppercoin’s central idea was to bill a randomly selected transaction a lump sum of money rather than billing each transaction for a small amount. Using ‘universal aggregation’ or random aggregation meant that neither party could influence it. It was said to reduce the transaction cost per dollar from 27 cents to ‘well below 10 cents’.
In 2007, just one year before seeing the birth of Bitcoin, Peppercoin was bought by Chockstone’s investment fund.
Today’s blockchain technology offers the prospect of transparency, security and efficiency associated with lower cost payments, as well as allowing for splitting and even micropayments in international transactions that occur within minutes. In a way it blows up the whole operation mechanics of a system like SWIFT, for example. But it is not enough.
The problem in Ethereum
In fact, as Jose Maldonado quoted in Observatorio Blockchain, Ethereum it is increasingly suffering the impact of the accelerated growth of the DeFi sector in its blockchain, a situation that directly reflects its congestion and the increases of more than 500% in the average cost of its transaction fees. This clashes with the idea of lower cost of payments.
While waiting for the next event at the Ethereum which will move to a Proof of Stake protocol, the truth is that the growth of recent DeFi protocols such as Compound (COMP) has left the current technology of the Ethereum network naked.
What is Algorand?
Algorand can be a more than reliable alternative to support the DeFi space in a supposed exponential growth. Although Ethereum for now is the basis for the Dapps of DeFi decentralized finance, we have already seen that Ethereum could be a limited solution for large scale applications.
Algorand intends to compete with Ethereum by creating the necessary functionality for De-Fi applications. It is a level 1 blockchain with a fairly natural environment for tokenization of securities, one of the incredible features of this network.
Since its launch, Algorand has continued to build outstanding partnerships with organizations including Coinbase, ISDA and Flipside Crypto. Also the Realio platform, an end-to-end blockchain-based SaaS platform for issuing, investing and managing the life cycle of digital assets has built a Layer 2 solution under Algorand’s network protocol. In addition, stable collateralized currencies such as Tether or USD Coin of Circle have also been incorporated as assets by integrating with the protocol.
These alliances open the door to real-world business applications in verticals such as remittances, derivatives and business intelligence.
Also in the space of NFT tokens or non-expendable tokens, applied to the video game industry. Algorand is more than just payment rails. It is the gateway to reliable decentralized applications and economic transparency by default.
Algorand implements the Proof of Stake (PoS) algorithm to achieve lower transaction times, lower energy consumption and provide tools that facilitate the technological evolution of your network.
Specifically, its consensus algorithm, which they have called Pure Pos, is responsible for linking the security of the network with the consensus of the majority, in a much more effective way than with the Delegated Proof of Stake or dPos (EOS, Lisk , Ark and Tron ), Liquid Proof of Stake (Tezos) or Bonded Proof of Stake (Cosmos) algorithm.
As we know, blockchain networks are structured through nodes. The Algorand network consists of two types of nodes that work simultaneously to ensure the proper functioning of the network: relay nodes and participation nodes. Both use the same software, the difference is in their configuration.
a) Broadcast nodes
They are responsible for maintaining the connections between the entire network structure. They have high performance connections that allow efficient communication routes. These nodes decongest the network by accumulating protocol messages from the participation nodes and other relay nodes connected to them. To achieve this, these nodes duplicate themselves, check signatures and other validation steps, and finally propagate only the valid messages. These nodes can be executed by anyone just by configuring a software.
b) Participation nodes
These are connected to the relay nodes and act as a user agent in the system. They propose and vote blocks on behalf of a user’s participation within the consensus algorithm that has previously authorized them. This type of node can also be executed by anyone.
Both the relay nodes and the participation nodes are responsible for the creation of blocks in the Algorand network. This process, in turn, is divided into two phases:
a) Proposal phase
A token is selected at random and its owner has to propose the blocks. The selected person is unknown to the rest of the network during the propagation phase. This makes it too late for anyone to interfere after the proposal has been validated.
b) Round of voting
A committee is formed by selecting 1,000 tokens at random, approving the block proposed by the first user. In this way they make the protocol very safe from adverse attacks as they do not know who to target.
We can highlight from Algorand the following differential characteristics from other networks in the market:
a) High competitiveness. Algorand has low calculation requirements, there is no need for super-powerful computer equipment or to create mining farms to be competitive.
b) Delegation system. Those who have tokens can delegate them to participate in the consensus.
c) Agreements are quick. General agreement with each new block and confirm latent transactions in less than a minute while scaling many users.
d) Algorand has resistance to hard forks. The new blocks are 100% reliable ensuring that no user can disagree with the confirmed transaction.
e) True decentralization. Components are selected at random. In this network we do not find a selected group in charge.
f) Governance system. Algorand’s community token holders can propose changes to the protocols among other improvements.
g) Open development. Anyone can see the source code and build on the Algorand platform for free.
Algorand and CBDCs
Another success for Algorand in pioneering the world’s first sovereign digital currency. It is called SOV and has been launched by the Marshall Islands. The reality is that SOV is technically not just digital money, it is an incredibly advanced product. It has certainly been overshadowed by the international race of the CBDCs with China apparently leading the way. However, if we look at the SOV we see incredible implementations like built-in scarcity, egalitarianism and UBI (Universal Basic Income).
The simple fact of being able to structure economic theories within a blockchain network gives you perspective on the versatility that this network offers. In particular the SOV has a codified monetary policy following the K-% rule of Nobel Prize winning economist Milton Friedman. This means that the money supply will grow by a fixed amount every year. This is coded in the SOV blockchain network at 4%. Unlike the central banks, no one can manipulate it and inflate the supply at will. It is, of course, unbelievable.
The Bank of England also seems interested in exploring Algorand’s technology, as this versatility offers the possibility of co-chain, a formula for controlling decentralisation, and although we can surely fall into contradictions, whether we like it or not, the Central Banks will make use of it.
Algorand’s team has developed and presented a new BLS signature scheme to the Internet Engineering Task Force (IETF), the standards organization responsible for the development of open source Internet protocols.
BLS signatures (by its acronym Boneh-Lihm-Shachan) add the multiple signature rounds required to authenticate multiple party transactions into a cryptographic signature. As a result, multiple transactions can be signed and authenticated securely in less time than when using existing signature schemes such as ECDSA (Elliptic Curve Digital Algorithm) or Schnorr signature found in Bitcoin and Bitcoin Liquid.
This design decision also allows verifiable random functions (VRF) to strengthen the randomness and security guarantees of the live network. By designing a protocol and consensus algorithm that uses the Byzantine agreement, a standardized BLS signature scheme, and VRF, the Algorand block chain achieves advanced security and becomes resistant to adaptive chain attacks.
Algorand was designed from the ground up to be Byzantine fault-tolerant and resistant to denial of service attacks, network threats, partitioning attacks, and other network incentive attacks. This means that Algorand’s network should in theory remain secure and live for users, even under attack conditions common to many centralized and decentralized platforms.
Algorand is definitely one of those real projects on the market. People who work tirelessly to close deals and encourage innovation. As the decentralized De-Fi market continues to evolve, I believe we will see trends in the development of decentralized applications that will reaffirm Algorand as an innovative market leader.